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Oil Price to Be Under Pressure Following Latest US Sanctions on Iran?

The nearest future for the oil markets does not look too bright, due to the tense situation between the United States and Iran.

As you may already know, the US President Donald Trump decided to get out of the Nuclear Deal (or Iran deal as it is popular online) signed between Iran, the US, China, Russia, and other major European economies.

New sanctions to take effect on November 4th

The United States already had imposed sanctions on Iran, targeting the Iranian government’s US dollar purchases, gold trading, and other precious metals, as well as the Iranian automotive sector. On November 4th, a new round of sanctions will take effect, targeting the Iran oil and shipping sector, and also new sanctions on its central bank. There’s already some significant activity in terms of the oil price. Online trading had been active during October, as the WTI price weakened by 12%.

The EU plans to avoid sanctions

November 4th will also be the starting date for sanctions on countries that will continue to do business with Iran. The US President wants to put further pressure on the Iranian regime and bring it to the negotiation table again. Geopolitical factors could be behind this strategy, as the Middle East had been marked by serious conflicts for the past few decades.

In an attempt to avoid US sanctions, Germany, France, Russia, the UK, China and Iran seem to have agreed on a plan. More specifically, the EU member states, will “set up a legal entity to facilitate legitimate financial transactions with Iran” as Federica Mogherini, the EU’s foreign policy chief had stated.

The new subsidiary body will have the main purpose of protecting commercial and central banks from US penalties. Also, the system will enable Iran to sell its oil this time in euro.

Could this lead to geopolitical shifts?

For the past few decades, there had been a close relationship between the US and the European Union, but after some controversial decisions taken by the current White House Administration, a growing divergence begins to unfold. We see the EU trying to get along with Russia and China, which could cause significant geopolitical changes in the next few years.

The United States is definitely the biggest economic power in the world, but isolating itself will only lead to its weakening influence and also, a treat to the US dollar status as a reserve currency.